Taxes Jump on Tuesday, Poor Hit Hardest

By March 30, 2009Taxation

From The Tax Foundation, “Federal Cigarette Tax Hike Goes Into Effect Tomorrow“:

The federal cigarette tax goes from 39 cents to $1.0066 per 20-cigarette pack tomorrow. The increase, as we noted in February, was coupled with an expansion of the federal children’s health care program.

As my colleague Gerald Prante and I argued, a politically popular and expensive program should never be funded by a small, low-income, politically unpopular minority like cigarette smokers. Just because the government needs revenue to fund some general spending program that has broad benefits doesn’t mean that an arbitrarily selected group of people should pay the tax. Popular, expensive, broadly available public programs should be paid for with broad-based taxes on income or consumption. In our paper, we run through many of the non-revenue reasons for raising cigarette taxes for S-CHIP and find them wanting, including the claim that the tax compensates for cigarette smokers disproportionately consuming public services.

This tax increase will be paid primarily by low-income people, which breaks President Obama’s pledge that families earning less than $250,000 will not see “any form of tax increase…not any of your taxes.”

Anti-smoking advocates north of the border predict what will happen next. From the Canadian Council for Tobacco Control (CCTC), February 19, 2009:

On February 4, 2009, President Obama signed a child health insurance bill that will be paid for by increasing U.S. federal taxes from US$3.90 per carton of 200 cigarettes to US $10.01. “This record increase gives the U.S. government a new motivation to shut down the factories,” concludes Bob Walsh.

“Unless action is taken, it is inevitable that the illegal factories will start sending illegal cigarettes throughout the U.S. instead of just to Canada. President Obama can advance both U.S. and Canadian interests by taking effective and immediate action.”

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